How to Buy Gold and Silver Islamically

In light of the ongoing global shift towards de-dollarization, the expansion of the BRICS alliance, and increasing interest in gold-backed currencies, we find it pertinent to revisit this discussion. As concerns about inflation and the instability of fiat currencies grow, especially with governments engaging in massive monetary expansion, the principles of a truly Islamic economy—grounded in real assets—offer a compelling alternative. This article addresses the renewed interest in precious metals as a safe haven and provides Shariah-compliant guidelines for investing in gold and silver.

The specter of inflation — possibly even hyperinflation — looms large when governments start printing money in the trillions of dollars. Euphemistically labelled “quantitative easing,” “buying securities,” or “supporting the economy,” increasing the money supply is not needed when an economy is based on real assets, as a truly Islamic economy would be.

Today, not even cash is backed by a real asset as it once was. Which is why not everyone is convinced by the bread and circus bromides of interest-based economists. Real assets include precious metals, and in turbulent times have historically provided an investment safe haven.

Ethica has been receiving many questions in recent months about how to buy gold and silver Islamically. Given the many missteps possible with precious metal investments, Ethica’s Shariah Board has issued the following expert legal opinions:

How do I buy gold and silver in accordance with Islamic law?

You must ensure four things for your gold or silver purchase to be Shariah-compliant:

1. Allocated, Not Unallocated: Most gold and silver buyers purchase funds in “unallocated storage,” meaning they buy the right to own, but not the bar itself. This is not permissible. Ensure that you have “allocated storage” with the actual serial number allocated to your name for a specific bar in a specific warehouse.
2. Price is Known: The certainty of the price is a necessary condition for the validity of a sale. If the price is uncertain, the sale is void.
3. Spot Execution: At least one of the following must be executed at spot: 1) delivery of the gold or silver, or 2) fixing of the price.
4. Market Value: The price of the gold or silver must not exceed the market value on the day of the transaction.

Can I buy gold and silver online?

There are two opinions, both valid, provided the above four conditions are met:

1. The way of legal strictness is that gold or silver must be purchased hand-in-hand, where the buyer and seller exchange money at the same physical location. Ordering online or by courier or post would not be permissible.
2. According to some scholars, including Mufti Muhammad Taqi Usmani, the way of legal dispensation is that one may only buy gold and silver online either 1) at spot and have delivery deferred, or 2) defer payment and take delivery on spot. If delivery is not on spot, one may not pay by cheque or any other instrument that defers the purchase online.

Someone wires me money and asks me to buy gold or silver and store it. After some time they want to sell the same gold or silver to me for cash. Could they just give me the cash if we agree that the ownership of the gold or silver is transferred to me?

Since the precious metal is already in your possession, the agreement of the price would be sufficient to transfer ownership to you.

If I buy gold or silver with a debit card and the transaction in my account shows it settled three days later, at which time the price of gold at the dealer could have either gone up or down, and either I end up with more gold or they end up with more cash, what would I need to do to make this right? Meaning if I end up with the better end of the deal, is that money considered Riba that I need to remove from my wealth by giving it to a non-religious charity?

If the amount from the retirement account is transferred immediately or the gold and silver is transferred immediately then this transaction is permissible. If neither occurred, the transaction would have to be canceled and the money returned.

I have a retirement account and I use it to buy gold and silver. The precious metal is transferred to a depository and the money is taken out of my retirement account. This is the only way to do it. The custodian does not accept any gold or silver directly from me; it must be from the supplier. Are such gold and silver retirement accounts permissible?

If the amount from the retirement account is transferred immediately or the gold or silver is transferred to the customer immediately then this transaction is permissible.

How do I pay zakat on gold or silver?

If your zakatable assets exceed the zakat minimum (the equivalent market value of 612.55 grams of silver on the zakat payment date), add the weight of all your gold or silver and find its value according to the market price on your zakat payment date. If you own jewellery, have a professional provide an estimate of the gold or silver weight.

What is meant by market value? Local rates for gold bars are going to vary. One usually must “shop around” for the best rate. All of them will certainly be higher than the price of gold one finds online. 

Only in a deferred sale, where the price of the gold or silver is deferred, is it mandatory that it be done at the market value. But in a spot sale, where none of the price is deferred, there is no such requirement. Therefore, in a spot sale, one can purchase the gold or silver at any price agreed between the buyer and seller.

When discussing gold and silver one often hears about buying “at spot.” Does this refer to the market spot price used by wholesale traders? For example, I am buying a gold coin at a specific price online. I agree and pay. It is then delivered to me two days later. Will that be considered the permissible “buying at spot price and deferring delivery”? 

Yes, that would be permissible. Additionally, the market spot price does not mean the price used by wholesale traders. Rather it refers to the price at which the gold or silver is sold to a walk-in customer at spot.

Does market value mean spot price, or does it mean spot plus markup? Because nobody ever sells gold and silver at spot prices. There is always a markup above spot price, depending on the seller. 

Market value means the price on which gold is sold to a walk-in customer at spot. In a deferred sale, where the price of the gold or silver is deferred, it is mandatory for the contract to be done at the market value of the gold or silver. But in a spot sale of precious metals, there is no such requirement.

Must funds leave a retirement account “immediately” for a transaction to be valid if the delivery is deferred? It seems that a wire transfer would not be permissible, since it usually settles in a few hours or days. Banks usually have a hold for wire transfers and may even need to call the account holder to prevent fraud. Would this delay invalidate the transaction, given that spot prices of metals fluctuate considerably even in a few hours? 

There are two scenarios while purchasing gold or silver online through a retirement account. First, where the buyer and seller consider the sale concluded once the offer and acceptance is exchanged by the buyer and seller at the time of the transaction. This is invalid, as neither the price nor the delivery of the precious metal is executed at the time of the transaction. In a second scenario the transaction is not considered concluded at the time of the online transaction. Rather, if it is considered concluded when the payment is finally transferred from the retirement account to the seller’s account, then this transaction would be considered valid.

How do I correct improperly executed gold and silver transactions? 

The transaction should be dissolved at the purchase price and executed again, whether with the same seller at a new price or a new seller.

Is it a condition for a valid gold or silver purchase that one personally see the precious metal being purchased? 

No. Please see the conditions outlined above.

Courtesy: ETHICA Institute of Islamic Finance